The Cape Town Convention Offers Registered International Interests Providing Maximal Security to American Lessees of Aircraft

Authors

B. Patrick HonnebierFollow

Abstract

This paper focuses on the acquisition of aircraft by United States-based airlines. At present in the U.S., airlines are faced with a fierce competition, and to commercially survive, they keep advertising that they operate modern and safe aircraft. Since the beginning of aviation, there does not exist a fully state-owned “flag carrier” in the U.S. On the contrary, the commercial airlines market has always been in the hands of private undertakings. Traditionally, the airlines themselves have arranged the acquisition of their fleets of aircraft. For this purpose, they have to obtain loans from private banks and other non-governmental financial institutions. A substantial amount of credit is annually extended to realize the acquisition of the costly aircraft. The credit is generally supplied through a “purchase-money loan” that is secured on the aircraft. This practice is called asset-based financing. In the U.S., the aircraft which are operated by the local airlines have generally been acquired by means of international finance and lease transactions.

As the acquisition of aircraft is extremely capital-intensive, the financier or lessor must be able to successfully enforce its proprietary interests in the specific aircraft. This requirement is of particular significance in the event that an airline defaults or becomes insolvent.

While the aforementioned need to safeguard the financiers and lessors is undisputed, this article firmly puts forward that also the lessees of aircraft must be adequately protected. The arguments contained in this contribution are substantiated by the local laws and international aviation finance and lease conventions which apply in the United States.

With respect to the local situation currently existing in the U.S., this contribution focuses on the relevant articles of the Uniform Commercial Code (UCC). Moreover, it refers to the manner in which these provisions have been implemented in the substantive property law of the State of New York. It is noted that in several other countries, the local airlines may obtain similar proprietary rights from the lessors. These foreign legal regimes aim, inter alia, to facilitate the creation, validity, and enforcement of the secured rights of the lessees of aircraft. Nevertheless, not all of these instruments are successful in providing the aircraft lessees with adequate security.

Recommended Citation

B. Patrick Honnebier, The Cape Town Convention Offers Registered International Interests Providing Maximal Security to American Lessees of Aircraft, 88 J. Air L. & Com. 817 (2023)